When do you have to register for VAT?

Oct 9, 2024

As a business owner, it’s important to know when you are legally required to register for VAT (Value Added Tax) with HM Revenue and Customs (HMRC). If your business’s taxable supplies exceed the VAT registration threshold within a 12-month period, you’ll need to register. This applies regardless of whether you’re a sole trader, limited company, or any other business structure.

VAT Registration Threshold for 2024/25

For the 2024/25 tax year, the VAT registration threshold is £90,000. This is based on a rolling 12-month period, meaning you need to keep an ongoing check of your taxable turnover over any 12 consecutive months—not just within the current tax year. If your turnover exceeds £90,000 at any point in this period, you’ll need to register for VAT.

Example 1:

XYZ Services Ltd has a turnover of £80,000 for the 12 months ending on 31 July 2024. As this is below the VAT threshold, no VAT registration is needed. However, a successful September pushes turnover to £93,000, exceeding the VAT threshold. XYZ Services Ltd must register for VAT by the end of September 2024, as registration must occur within 30 days of exceeding the threshold.

What Are Taxable Supplies?

Taxable supplies refer to goods and services that are subject to VAT. This includes both standard and zero-rated items but excludes those exempt from VAT. Essentially, if your business sells taxable supplies, their total value is your VAT-relevant turnover. According to HMRC, taxable supplies include:

  • Goods hired or loaned to customers

  • Business goods used for personal reasons

  • Goods part-exchanged, bartered, or given away as gifts

  • Services from overseas businesses that are reverse charged

  • Any construction work valued over £100,000 that your business undertakes for itself

You must also register if you expect to exceed the VAT threshold within the next 30 days. In this case, VAT registration is effective from the day you anticipate crossing the threshold, not from when you actually do.

Example 2:

DEF Building Supplies Ltd typically earns £60,000 annually. In September 2024, they receive a £100,000 order, which will push them over the VAT threshold. Since DEF expects to exceed £90,000 within 30 days, they need to register immediately to ensure this large order is VAT-compliant.

Voluntary VAT Registration

Even if your turnover is below the VAT threshold, you can register voluntarily. This may benefit your business, especially if you deal with other VAT-registered companies, as you can reclaim VAT on business expenses. However, voluntary registration also comes with administrative duties, so weigh the pros and cons carefully.

Requesting a VAT Exception

If you temporarily exceed the VAT threshold but expect turnover to drop below it in the near future, you can apply for a VAT registration exception. To do so, you must write to HMRC with detailed reasons explaining why your business shouldn’t have to register. HMRC will assess your application and either approve or reject it. If rejected, you must proceed with registration.

What If You Miss the VAT Registration Deadline?

Failing to register within 30 days of exceeding the threshold can lead to serious consequences. HMRC will require you to pay the VAT you owe from the time you should have registered, possibly with added interest. Penalties may also be applied based on the amount of VAT owed and the length of time you were late.

If you have a valid reason for the delay, such as unforeseen circumstances, you may be able to negotiate with HMRC to reduce or cancel the penalty. However, you won’t get much sympathy if you’ve simply neglected to check your turnover regularly. It’s advisable to monitor your turnover monthly to avoid missing deadlines.

Conclusion

Registering for VAT is a significant milestone for your business, and keeping track of your turnover is essential to staying compliant with HMRC regulations. Whether you’re close to the threshold or just want to explore the option of voluntary registration, ensure you understand your VAT obligations to avoid penalties and unnecessary stress.

If you need help managing your VAT obligations or understanding whether it’s the right time to register, consulting an accountant or business advisor is a smart move.